Commission Opinion [COM(97) 2010 final - Not published in the Official Journal]

Commission Report [COM(98) 709 final - Not published in the Official Journal]

Commission Report [COM (1999) 512 final - Not published in the Official Journal]

Commission Report [COM (2000) 712 final - Not published in the Official Journal]

Commission Report [COM(2001) 700 final - SEC(2001) 1755 - Not published in the Official Journal]

Commission Report [COM(2002) 700 final - SEC(2002) 1411 - Not published in the Official Journal]

Journal].Commission Report [COM(2003) 675 final - SEC(2003) 1208 - Not published in the Official Journal]

Treaty of Accession to the European Union [Official Journal L 236 of 23.09.2003]

2) SUMMARY

In its July 1997 Opinion, the Commission took the view that it was too early to decide on Slovenia's participation in the euro area immediately upon its accession. If it were to participate in the third stage of Economic and Monetary Union (EMU) while not being a member of the euro area, this should not pose any problem in the medium term. However, the Commission urged Slovenia to make its central bank legislation fully compatible with Community requirements and to restructure its banking sector. Finally, it considered that Slovenia would have to be able to curb speculative capital inflows without resorting automatically to capital controls.

The November 1998 Report noted that Slovenia had made little additional progress in its preparations for participation in EMU.

In its 1999 Report, the Commission took the view that Slovenia had made little progress and that the central bank legislation still did not meet Community requirements.

The November 2000 Report stated that Slovenia had made a certain amount of progress in adopting the acquis.

The November 2001 Report found no events worth mentioning on the legislative front.

In its October 2002 Report, the Commission noted significant progress in adopting the acquis relating to EMU, with the approval of the Law on the Bank of Slovenia in June 2002.

In its November 2003 Report, the Commission notes that Slovenia has met its commitments and requirements arising from the accession negotiations and will be able to implement the acquis on accession.

The Treaty of Accession was signed on 16 April 2003 and accession took place on 1 May 2004.

COMMUNITY ACQUIS

The third stage of EMU began on 1 January 1999. This date will entail far-reaching changes for all Member States, even those not taking part in the euro area from the outset.

In the economic sphere, the keystone is the coordination of national policies (national convergence programmes, general economic guidelines, multilateral surveillance and excessive-deficit procedure). All countries are required to comply with the Stability and Growth Pact, to refrain from direct financing of the government deficit by the central bank, to prohibit privileged access by public authorities to financial institutions and to have liberalised capital movements.

Member States not taking part in the euro area conduct an independent monetary policy and participate in the European System of Central Banks (ESCB) under certain conditions. Central banks must be independent and must have price stability as their primary objective. Lastly, exchange-rate policy is regarded as a matter of common interest by all Member States, who must be in a position to participate in the new exchange-rate mechanism.

Even though accession entails acceptance of the objective of EMU, compliance with the convergence criteria is not a precondition. However, since those criteria are indicative of a macroeconomic policy geared to achieving stability, all Member States must, in due course, comply with them on a permanent basis.

EVALUATION

Having been part of the former Yugoslavia, Slovenia has never had typical command planning: the system was more one of co-management with a "social" form of ownership. On gaining its independence in 1991, Slovenia began its transition by focusing on stabilisation rather than on reform. The pace of privatisation was therefore slow, and restructuring has taken place only to a limited degree. Slovenia remained relatively sheltered from the Russian crisis thanks to the earlier reorientation of its trade towards European Union markets. In 2000 GDP per capita in purchasing power standards stood at 71.6% of the EU average as against 64.3% in 1995. In 2003 the Commission notes that employment growth has stagnated, with an employment rate of 63.4%, while unemployment has increased to 6%.

As regards economic activity, real GDP increased by 4.6% in 1997, compared to 3.1% in 1996. In 1998 economic growth, driven mainly by exports, slowed to 3.9%. In 1999 growth was higher than expected at 4.9%, and this trend continued in 2000, when the figure was 4.6%. Since 1997 GDP has risen by an annual average of 4.2%. In 2001 growth was almost exclusively export-led, dropping to 3.0% because of the decline in domestic demand. During the first half of 2002 GDP growth slowed once again, falling to 2.2%, one of the lowest rates recorded to date. The 2003 report notes that GDP growth, mainly driven by domestic demand, amounted to 3.2% in 2002.

On the public finances front, the deficit came to 1.2% of GDP in 1997, a significant deterioration compared with the surplus of 0.3% of GDP in 1996. The state of the public finances improved in 1998 with a general government deficit of 0.8%, and the downward trend continued in 1999, when the deficit came to 0.6% of GDP. In 2000 the general government deficit rose to 1.4% of GDP although, when calculated according to harmonised EU standards (ESA95), it stood at 2.3%. On these definitions, the general government deficit was around 2.3% of GDP over the period from 1997 to 2001. The fiscal deficit was higher than expected in 2001 at 2.5% of GDP. In July 2002 the parliament adopted a supplementary budget, setting the fiscal deficit at 1.8% of GDP. Gross foreign debt remains at the relatively low level of 27.5% of GDP although it is on the increase. For 2002, the government budget deficit was marginally reduced to 2.6% of GDP, although the original target had been set at 1.6% of GDP.

The rate of inflation continued to fall, albeit more slowly, from 9.9% in 1996 to 8.4% in 1997. Further progress was then made, with the rate dropping from 7.9% in 1998 to 6% in 1999. The following year inflation picked up again, reaching 8.9%. Since the Opinion was published, the annual increase in consumer prices has fluctuated around the 8% mark; the 2001 figure was 8.6%. The 2003 report notes that inflation was 7.5% in 2002. This downturn seems to have continued in 2003, with an annual rate of 6.3% in August.

As regards the exchange rate, Slovenia has practised a policy of managed floating. The nominal effective exchange rate of the tolar is calculated on the basis of a weighted basket of the currencies of Slovenia's main export markets. The real exchange rate appreciated in 1998 before falling by 2.3% in 1999 and by 8.7% in 2000. In 2001 the pace of nominal depreciation slowed down to 6.9 %, linked partly to positive current account developments. The managed exchange-rate approach allows rates to fluctuate to some extent against the euro, without any precise targets being set for rates or formal fluctuation margins. The 2003 report notes that, although the tolar's actual exchange rate increased by 2.7% in real terms in 2002, it declined by 2.9% in nominal terms, exacerbating inflationary pressure.

The current-account balance was slightly positive in 1997, as in previous years. At the end of 1998 there was a small current-account deficit, which widened to 2.9% of GDP in 1999. The deficit then fell slightly despite unfavourable developments in the terms of trade in 2000, settling at 3.3% of GDP in 2000. The 2002 report noted a significant reduction in the deficit, bringing the current account once again close to balance. The 2003 report notes that the increase in exports and the more favourable terms of trade contributed to the very rapid improvement in the trade balance and the balance on current account. In 2002 there was a marked increase in the current-account surplus, to 1.7% of GDP, the highest level achieved since 1994. Direct foreign investment also returned to record levels.

On the question of structural reforms, the 1998 report stated that privatisation of socially owned enterprises was almost complete. Slovenia can be regarded as a functioning market economy and enjoys satisfactory macroeconomic stability. There is steady progress in the restructuring of enterprises. Although Slovenia has made major progress in privatisation since independence, the share of the private sector in production is still relatively low, at about 50%-55%. Pension reform has begun with the adoption in December 1999 of the new Pension and Disability Insurance Law, which entered into force on 1 January 2000. Small and medium-sized enterprises play a crucial role in the economy, accounting for 99.7% of enterprises in 1998. In its 2002 report, the Commission notes that the State still retains a great deal of influence in the economy, even though it is gradually withdrawing. The banking system is generally sound, but underdeveloped and protected. By pursuing the current reforms, Slovenia should be able to cope with competitive pressure and market forces within the Union. The 2003 report notes that the restructuring process continued in line with the reforms, but at a slower rate and with varied results in the different branches of the economy. With a view to boosting the economy's competitiveness, the Commission is encouraging the government to speed up structural reform, and in particular to wind up the Slovene Development Fund and move ahead with privatisation of the financial sector.

As regards the independence of the central bank, the 1998 report stated that, although the Bank of Slovenia enjoyed a broad degree of autonomy, the legislation concerned was incompatible with the rules of the acquis. Under the Banking Law, the central bank could grant the State short-term loans although this provision was never used. The Bank was not independent as it had to consult parliament on its financial plan and annual statement of accounts. An amendment to the Central Bank Law taking these factors into account was laid before parliament in July 2000. The public sector's privileged access to financial institutions has been partially abolished. The 2002 report notes that the new law guarantees compliance with the acquis as regards central bank independence and a prohibition on direct public sector financing by the central bank. As regards the public sector's privileged access to financial institutions, the provisions that were regarded as incompatible with the acquis have been amended. The 2003 reports notes that Slovene law has been brought into line with the acquis.

As regards the negotiations, Slovenia has accepted the provisions of the EMU acquis and is complying fully with them. The administrative structures needed to implement and apply the acquis are in place. The country will take part in EMU immediately on accession, with the status of a country with a derogation under Article 122 of the EC Treaty. Negotiations on this chapter were closed in December 2002. The Government has not asked for any transitional arrangements. In general, Slovenia is honouring the undertakings it gave during accession negotiations in this field.